Seeing off the competition
Hedge fund administrators and consultants in Dublin acknowledge that the erosion in recent years of the jurisdiction's cost advantage over rival centres, mitigated but not fully counterbalanced by the opening of regional satellite facilities, exposes Ireland to increasing competition in the fund servicing field. However, for the most part they believe that in the long term, the threat is greatest from jurisdictions currently still below the radar of the hedge fund industry, rather than the established centres that are currently trying to wrest away some of Dublin's business.
Says PFPC International's Mark Mannion: 'In the early 1990s Dublin had the reputation of being a low-cost centre, but now its attraction is based more on expertise. It remains ahead of rivals such as Cayman, which suffered badly from the devastation of Hurricane Ivan in 2004, prompting some administrators to reduce their use of the island as an actual location for administration, although it remains popular as a domicile.
'Jurisdictions such as the Channel Islands and the Isle of Man have always had capacity issues to a much greater degree than Dublin, and I don't see them ever being able to resolve it because they are limited in space. The one jurisdiction that perhaps had a credible chance of closing the gap on Dublin was Luxembourg, but that likelihood has now diminished. Our regulatory approach has helped the industry remain at the cutting edge in terms of the products that we offer and our approach to fund administration.'
Adds Custom House Administration's Dermot Butler: 'The Isle of Man has made a big play of trying to attract administrators, but its only advantage is cost, and probably only temporarily. The island is not very big, and we've seen shortages of staff there before. Jersey and Guernsey apparently are making inroads, but they're both really expensive.'
In a longer time horizon, members of the industry in Dublin see competition from lower-cost jurisdictions in southern and eastern Europe and beyond, including places currently not thought of as international financial centres. Says Mannion: 'In a longer time frame of up to 10 years other jurisdictions could emerge, such as South Africa and Dubai, and build up the expertise.'
Kinetic Partners' Raymond O'Neill says: 'There's pressure from places like Malta, as well as the Isle of Man and the Channel Islands, that will continue to grow and to attract business, sometimes from Ireland, but the low-cost centres are going to be eastern Europe. We need to consider the potential of Poland and the Czech Republic to do what Ireland did in the late 1980s, which changed the country dramatically in less than 20 years.'
But that may not necessarily be a bad thing for Ireland. 'The outsourcing of certain activities to lower-cost locations makes a lot of sense,' O'Neill says. Adds Deloitte's Ronan Nolan: 'At the slightly less specialised end of the market, some of the central European countries are bound to develop, and other countries like Malta are looking at the Irish model as a case study. Dublin will probably need to focus on the added value end of the sector.'
One potential low-cost centre that could buttress Ireland's market position rather than compete directly with it is practically on Dublin's doorstep. 'Belfast and Northern Ireland were advertising themselves at a recent conference,' Butler says. 'Today their situation is similar to Dublin's 15 years ago, with relatively high unemployment and a lot of well qualified staff.'
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